Q4 2022 Century Casinos Inc Earnings Call
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Good day everyone.
Welcome to century casinos Q4, 2022 earnings call. During today's conference you may submit questions to the procedures by pressing star one on your Touchtone phone at any time during the broadcast if you require technical assistance. During todays event you can reference to help link at the top.
Your screen please.
Please note today's call will be recorded and I will be standing by should you need in the system.
It is now my pleasure to turn today's call over to Peter Ho Chi. Please go ahead.
Okay.
Good morning, everyone and thank you for joining our earnings call.
With me on the call on my co CEO and the chairman of century casinos Caribbean Heitzman.
As well as our Chief Financial Officer Margaret Stapleton.
As always we would like to remind you that we will be discussing forward looking information, which involves certain risks and uncertainties that may cause actual results to differ materially from our forward looking statements.
The company undertakes no obligation to update or revise the forward looking statements.
As a result of new information future events or otherwise.
We provide a detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings.
In addition throughout our call we refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA.
Reconciliations of all non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news releases SEC filings available in the investor sections of our website at <unk> com.
And I'll provide an overview of the results of the fourth quarter and full year 2000.
'twenty two.
After that there'll be a Q&A session.
For the year 2022, we had an all time record with net operating revenues up 11% and adjusted EBIT up 6% or what 2021.
We achieved these record results, even until our Colorado Riverboat casino in Missouri, or CBD, you picked at Barbados throughout the fourth quarter.
You had to close in November and then could reopen.
Victor capacity only.
That did cost us about 2 million in EBITDA compared to Q4 of 'twenty one.
The dangerously low water levels required us to become creative index quickly and we did with the approval of the Missouri Gaming Commission just before the Christmas holidays.
These moves all operations to temporarily land base building.
We typically don't like to call out weather, but in addition to the issues we had in <unk>, Sweden Cvs.
Severe storms freezing temperatures in mid December .
It's quite a neat picked up at our other properties in Sweden that negatively impacted Q4 results.
However, as the weather broke demand returns and we ended the quarter on a high note with strong performances not only at Carrabba's Sweet.
The entire portfolio between Christmas and new year's.
And that has continued into January and February .
The regional gaming customer is showing little sign of slowing down.
Indicators, such as unemployment and wage growth going to a REIT I hadn't seen environment.
Outside of later.
Underlying demand trends remaining solid heading into Q2 in Q3 of this year.
On the expense side of the business.
Our teams are managing the overall cost structure by dealing with inflationary pressures that still exist.
Wage inflation has largely normalized but utility situation remains elevated.
The promotional environment across all of our markets remains relatively stable.
It is pretty disciplined we continue to envision a very rational marketing approach for all of us.
Now I'll review each segment in a little bit more detail.
In Colorado.
We finished the year with flat revenues in the fourth quarter EBIT.
EBITDA was impacted by higher labor and utility costs compared to last year.
We held our market share is steady.
The old or number of visits was down in October and November .
He turned around in December and that positive trend continues into two banners this year.
Especially from the higher ADT segments.
There's also a similar picture invested junior.
At Mountaineer casino racetrack and resort difficult start to the quarter.
I'm, both strips to the casino was downs, especially midweek.
But business come back over the holidays and currently split year over year.
Yes did experiencing staffing challenges at mountaineer.
Sorting and limitations two hours of operation and availability of hotel rooms.
In Missouri, we.
You saw what trips and revenue from all age groups distance ranges and ADT segments across the database.
Spend per trip plus even to prior year.
I mentioned, the dangerously low water level situation. It theoretically already but you also had a significant winter weather impacting December during what is typically one of the busiest times of the year.
Right after that business rebounded strongly with an all time record for daily caught it all picture auto property on New year's Eve.
That trend has continued into the current quarter.
Currently we are up around 3% compared to Q1 of last year at both the pharmaceutical properties.
Let me add more color to our growth projects there.
Construction of the new land based casinos development Corrado, Sweden is progressing according to schedule.
And to open in Q4 of next year.
The new property, we have total of 70 410 rooms twice.
Gaming tables with over 600 slot machines, which is a 20% decrease in gaming positions compared to the old riverboat.
Most importantly, it will provide significant operational efficiencies.
Would be much more convenient for our customers and it will increase our catchment area.
At century Casino picture, although the larger of our two Missouri casinos.
Construction of the 69 room six story Hotel building is right on track for an opening around this time of next year.
Net development will transform the property to a full resort destination offering gaming dining conferences concepts events and more.
Okay.
Moving north to Canada.
All four properties showed nice gains for the quarter and that continued into January and February .
On top of that we felt very good news from the regulatory front last week.
April one of this year.
The gaming Commission is increasing the operators portion from soft revenues by 2%.
To help promote overall growth in gaming proceeds by enabling operators to invest in our facilities.
Well I. This is a temporary measure valid for two years from now.
We expect a significant increase in our results from next quarter on.
Our casinos in Poland continued their solid performance revenue was up 11%.
This all results in Poland are consistently strong.
It may as well wait for another license excited to kick start the sales process.
We don't have any time pressure.
That timing is not an issue for us as you know we have an excellent management teams are in place and there's.
There's no need for any investment or capex from our side, it's quite the opposite cash is flowing from Poland to us.
If you look at our balance sheet into PDP shows that we have 102 million in cash cash equivalents.
The 100 million, which we keep an escrow for the closing of the Nugget Opco transaction. Once they are other licensing is complete.
Outstanding debt totaled $360 million.
Which includes $347 million.
Goldman Sachs credit agreement if.
The China business in escrow for the Nugget.
Yeah.
Our two pending acquisitions are progressing as planned.
We had a hearing at the Nevada Gaming control Board day before yesterday.
Happy to report that all went well the bath on that name is Lee recommended Approver, certainly, Nevada Gaming Commission.
Our application to acquire the Nugget casino resort operations.
Oh application must still be approved by the gaming Commission in Nevada.
At its meeting on March 23.
If approved we plan to close the Nugget acquisition in the first week of April less than four weeks from today.
We are finalizing our plans for initial investments and upgrades and I'm more excited than ever about the potential for improvements.
The immediate focus will be on the gaming floor.
On raising the potential for synergy effects across all operational departments.
They're not getting the full service resort destination with almost 200 hotel rooms and suites and.
The casino was 850 slots in 2009 papers.
Restaurants, several indoor and outdoor entertainment venues.
This is one of the largest conventional areas in the market.
Dislocation of I 80 provides unmatched exposure in the Reno Sparks area.
I know I'm, taking full advantage of that that was a new attractive facade and signage.
In Maryland.
To close the Rocky gap acquisition, a couple of months after the Nokia transaction, probably in June or July .
Simultaneously with the closing of that transaction.
<unk> properties will take over their real estate assets, and we will amend our existing master lease with <unk> at the Rocky gap property.
Okay.
Service was sort of less than two hours from the Baltimore and Washington D C Metro areas.
And includes an 18 hole golf course design, but Jack Nicklaus.
<unk> thousand square feet event center central meeting spaces, and spa and several outlet activities.
The property consists of over 25000 square feet of gaming floor 600 slot machines 16 table games 198 hotel rooms, and five F&B venues.
With the market and drop you get acquisitions. He will oversee your U S portfolio that reaches from east to west on a pro forma basis after giving effect to the two acquisitions.
<unk> to generate over 80% of our EBITDA in the U S.
But it is also important to note is the fact that these two acquisitions will improve our leverage ratios.
Our current total debt to EBITDA ratio is four eight times and debt was reduced to three five times.
Our net debt to EBITDA goes from three five to $3 one.
The lease adjusted net leverage remains flat at four seven times.
As for the discussion about the most of that will teach us mix of hotels in the op Cos and with some operators being very aggressive with rent coverage.
It will be at the quite healthy and conservative rent coverage of three one times across our portfolio and that's already.
For the two pending acquisitions.
With that we feel very comfortable and we'll continue working with real estate investors on a case by case basis to support our growth.
As we move further into 2023.
The economic uncertainty that persists today makes it difficult to predict what consumer trends are headed.
Yes, mainly watching two economic factors that we believe are tightly correlated with behavior for our core customers.
The biggest impact on our business volumes, which are the labor market and housing.
Slight shifts in cash prices or interest rates don't seem to affect our customers that much.
Because if you are cautiously optimistic about the positive trends, we saw in January and February across all our markets.
In closing as we look back on 2022. It was another transformative year for century, we posted record results and signed agreements to acquire another 180 million of revenues at over 50 million of EBITDAR.
Looking ahead, we're excited about the market and rocky gap acquisitions as well as the regulatory possibly exchanged on thought to.
This year.
About our two Missouri growth projects coming online next year.
Further bpd, if there are additional opportunities to drive organic growth in our land based operation.
Well I guess gave you some macro risks still these growth drivers.
<unk> to more than offset potential pressure.
On behalf of the company's management and board I'd like to thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm.
Thank you for your attention can now start the Q&A session. Operator go ahead. Please.
Yeah.
Absolutely.
This time, we will open the floor for questions.
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We'll take our first question.
From just schedule your line is open.
Hi, there this is Jackson Gabe on for Jeff Stanchion <unk>.
I noticed that you quantified the carruthers felt disruption as a $2 million hit to EBITDA I was wondering if you could in a similar way quantify the impact of weather in the fourth quarter.
To your results.
I mean, we don't have the number for the two weeks.
That's a bit higher there.
It is tough to say I mean.
I hesitate to say something it would be too speculative.
Okay.
Fair.
Then then thinking about margins those two impacts whether in the disruption of crothers real clearly affected margins, but throughout the portfolio. It looks like they they came in a little bit I was wondering if you know once these temporary pressures our.
Roll off how are you thinking about margins into 2023, and you know what kind of represents a reasonable run rate for the business moving forward.
Okay.
If I may take care.
If we look at the expense side.
Texas on the debt.
We had this additional expense the higher utility costs.
The property insurance and here or there also have Canada.
Salary increases and coupled with that a higher maintenance.
Hi cost of operating supplies.
<unk>.
We would think that these costs will not go up and maybe.
It's usually a little bit down but.
Nobody can predict the future, but dollar assessment would be that we sold.
Well beyond the peak of our of these price increases.
And so.
So we don't think that we need any more salary increases off of any significance.
Hopefully insurance entities prices.
It doesn't go up any higher.
And with regard to the Matson was really there was a rabbit pounds on.
Uh huh.
To further increase their NATO printing revenues.
Thank you very much.
Our next question comes from Chad Beynon Your line is open.
Hi, good morning, Thanks for taking my question.
Peter Erwin wanted to ask about the Missouri growth projects has anything changed in terms of kind of the cost or the scope of these projects and then also kind of how you view the return profile once fully ramped. Thank you.
Nothing has changed with regard to.
The cost to the well on budget within that budget, so that looks good.
And to take.
Do you have the latest with data on their on their return percentage.
Return than it is in invested capital.
So the cap T hilco.
So they don't have been done without the other home.
I don't have those right in front of me now.
We have we have the we have said that we expect the 10% to 50% return at Cape Girardeau, and 15% to 20% Corrado ceiling, Missouri.
And that is that is that is.
What changed.
These are significant.
Great.
Improvements to especially crop Australia.
It's really a it's a game changer, because we'll have a number of hotel rooms will have.
All these Bolton bacci issue is gone.
And in the property.
So.
First time visitors.
Which has not come back and they split Corrado switch both for the dose that we know will then come back.
Because we will have a big impact.
Thank you I appreciate it and then with respect to the Nugget I guess a couple of questions on that congrats on all the progress in terms of closing that.
Obviously, we're all well aware of the weather impact there.
Not affecting your numbers at this point, but when you take control of the property you talked about some upgrades the gaming floor and synergies and the like should there be some disruption, meaning should we assume kind of a low positive impact for that for that second quarter kind of when you. When you take control and then we'll start to see the benefits or will there be less disk.
The option as you look to make some of these changes once you control the property tax.
Alright, I thought I don't think that at least I believe we don't see any disruption certainly nothing like in Q2.
I mean changes to the gaming floor.
We pick up the slot mix here.
Cause that disruption that doesn't disrupt to putting in new slots is not really disrupting the neil patients and the the.
The only thing that we looked at that.
What disruptions topic to magnitude if and when we changed the floor layout and an expanded flor.
And make changes to the current layout, but if and when we were in the middle of planning that but if and when we do that obviously.
Important integral part of the planning would be to do it in such a pace netted disruptions at the minimum.
Then no dividend.
And I think thats very easily but the good thing about one of the good aspect of the nugget. The states. There is a lot of square footage and we have a lot to a lot of room to play with.
Okay, and just one last one on the nugget when we when we think about the TTM multiple even with some of this maybe weather disruption are we still kind of sub six from an opco standpoint in terms of what you guys will be paying for.
For the asset.
Well if you take if we're taking that 2022 numbers than we are a bit higher than six.
But the 'twenty to 'twenty, two when I used to be not only negatively impacted by it but but right there in Q4.
So on the on the events front I mean, you know that more detail quite a quite a few.
Tiny impact.
It shows.
That had a material impact to the 2022 numbers right.
Yeah, four four or four shows excellent cancer Jay Leno.
Okay. It makes a dent at home.
John fault that they got some thickness in the eye and then the other two gentlemen, it was a coup stay they've a corresponding into next year. One was afraid of Covid and the other one we don't know why they I mean that is really unfortunate and all of these cancellations came test too short to be able to predict a market management to get a replacement.
So that should be hopefully has been blackberry outlet here in Italy, We don't think that this will repeat itself.
I appreciate it thanks for all the additional color.
Oh, yes.
Yeah.
And our next question comes from Jordan Bender Your line is open.
Great. Thanks, Irwin you called out a pretty positive outlook into the second and third quarter. This year can you maybe break that down between the drivers of that are these in the outgrowth factors you called out and then is it fair to assume that the second and third quarter, you should be up year over year on a same store base.
<unk>.
Yes, Jordan, that's what that's what we expect that that's what it looks like right now and it's a pretty much across the board.
Dish in West, Virginia up in Missouri in in Colorado.
Poland, and Canada, Poland, Canada.
In Canada, that's right yeah.
Okay. Good to hear and then just following up in credit still.
It looks like gaming positions has increased pretty meaningfully with the move to land can we maybe get an update on the performance of the temporary facility and how consumers are viewing that and maybe what should we expect this year from that.
And.
Maybe to give you some flavor.
Last talking 10, or a manager they are removed from the bolt to the Tampa.
Temporary facility literally called pavilion.
He said he has not seen one single customer who has been unhappy about that both not being there anymore.
People are really happy about it I mean, it's a handful of nice little you would say, it's a wonderfully in terms of facilities and all sorts of ergo. The build of course, it will be brand new and then it takes months pet the pet bottles possible because the vehicles are very good feeling about both the table games to enter soft machine side is very well accepted.
And we're really happy that nando to circumstances that are difficult to grow that.
We took care of that with a lot of support from the local authority, they're able to get the approval for that are moving to this facility.
Great. Thanks, I'll pass it off.
Thanks, John .
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We will take our next question from.
Edward Engel your line is open.
Hi, Thanks for taking my question as some of these acquisitions kind of closed throughout the year.
Can you just start generating substantial free cash flow, where does this kind of free cash flow get focus too or are you still opened on the M&A front does it just go completely deleveraging or are there other kind of capex projects across the portfolio just kind of wondering how that cap allocation shifts as these acquisitions closed.
Hi.
For the question.
We see.
Mix of certain in certain things.
Things.
Deleveraging is one and and yes, we we want to become active again on the M&A front.
Once we close the Rocky gap acquisition in the summertime.
Uh huh.
I also want to give you a little bit back to the shareholders. So it will be a combination of all those things are little bit dependent on how how P. C.
The M&A situations will get Oh.
Some come Q3 and Q4.
Great helpful. And then you you.
You were helpful in giving the pro forma net leverage like these things closed just wondering do you have a target net leverage you have in mind in a steady state environment, I guess not M&A environment.
Okay.
Our lease adjusted around four four and a half times is where we feel very comfortable.
Yeah.
Great. Thank you.
Thanks, Ed.
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We'll pause another moment to allow questions to queue.
Okay.
Okay.
It appears we have no questions at this time.
Well, we appreciate everybody joining our call today.
For a recording of the call. Please visit the financial results section of our website at <unk> Dot com.
And if you have any follow up questions. Please feel free to reach out to us. Thank you.
Operator that concludes our call.
Thank you ladies and gentlemen.
This concludes today's program you may now disconnect.
Okay.
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